European stocks hit record highs, supported by resources and interest rate optimism

European stocks opened strongly and historicly high as trading resumed after the New Year holiday, reaching unprecedented levels, driven primarily by a rebound in the basic resources sector and investor optimism regarding the direction of global monetary policy. This surge reflects a high appetite for risk in financial markets, despite the mixed performance of some key sectors.

During trading, the pan-European STOXX 600 index edged up 0.02% to close at 588.71 points, after hitting a new session high of 589.61 points. Meanwhile, some major indices showed mixed performance, with Germany's DAX index falling 0.2%, while the UK's FTSE 100 and France's CAC 40 remained largely unchanged, indicating a cautious wait-and-see approach in some of Europe's major markets.

Commodities rebound and defense falters

Shares of companies linked to basic commodities led the gains, rising 0.7% on the Stoxx 600 index, benefiting from the surge in global precious metal prices. The technology and healthcare sectors also provided further support to the broader market, helping to maintain the positive momentum.

In contrast, shares of defense and aerospace companies came under significant selling pressure, declining by 1.3%. This drop was a direct reaction to recent political statements, after US President Donald Trump announced he was very close to reaching an agreement with Ukrainian President Volodymyr Zelensky to end the war in Ukraine. Markets typically interpret such news as potentially leading to reduced future military spending or decreased demand for defense equipment, prompting investors to take profits in a sector that has seen substantial growth during the years of conflict.

Awaiting the Federal Reserve minutes

Investors are now focused on the United States, as the world awaits the release of the minutes from the latest meeting of the Federal Reserve (the US central bank), scheduled for tomorrow. This document is of paramount importance because it outlines the contours of global monetary policy for the coming period.

The US Federal Reserve cut interest rates earlier this month, indicating it might only cut one more rate next year. However, financial markets are adopting a more optimistic outlook, with market participants betting on at least two further rate cuts. They anticipate that the next Federal Reserve chair will favor a more accommodative monetary policy to support economic growth, which typically has a positive impact on global stock markets, including European ones.